Pressure on Osborne as IMF issues gloomy growth forecast

UK needs to be ready to reverse current austerity tactics if economy remains weak, says Fund

THE International Monetary Fund had delivered a pessimistic assessment of the global economy, saying the potential for growth, in both advanced and emerging economies, is permanently damaged. People will be poorer than hoped and deficits more difficult to close.

While the Fund says much depends on the actions of European and US policy makers, the reality is the growth rate of advanced economies has already been marked down for years ahead, says the Financial Times.

As for the UK, the Fund said Chancellor George Osborne should be ready to relax his austerity-based fiscal consolidation strategy, aimed at wiping out the UK's structural deficit by 2017, if the economy remains weak.

IMF officials in Tokyo said they forecast the UK economy to decline this year from growth of 0.2 per cent to a contraction of 0.4 per cent. Next year, UK growth could reach 1.1 per cent, not the 1.4 per cent previously forecast.

In response to the downgrade, the BBC reports, the UK Treasury highlighted the fact that the IMF had "repeated its advice that the first line of defence against [slowing growth] should be to allow the automatic stabilisers to operate, monetary policy easing and measures to ease the flow of credit - all of which the UK is doing".

In its World Economic Outlook, the Fund's forecast for global growth this year has been lowered to 3.3 per cent from 3.5 per cent and, for 2013, down to 3.6 per cent from 3.9 per cent.

"Five years after the onset of the Great Recession, the recovery remains tepid and bumpy, and prospects remain very uncertain," says the WEO. "Unemployment is unacceptably high in most advanced economies, and workers in emerging market and developing economies face a chronic struggle to find formal employment."

The Independent says "even worse news" could be on the way if US politicians don't thrash out a compromise to avoid the so-called "fiscal cliff" of tax rises and spending cuts that could knock $500 billion off the world's biggest economy next year.

Is anywhere in the west prospering when even Finnish and Danish economies are recording negative growth and Swedish GDP is flat? Only oil-rich Norway, which has raised its 2012 growth forecast to 3.7 per cent, is escaping the gloom.